When it comes to taking a mortgage, most people want the comfy feeling of a locked-in interest rate. They want to be safe if rates rise, rather than sorry if they fall.
But you might be able to have your cake and eat it, too. As lenders face increased competition, more are willing to let you unlock a locked rate if mortgage rates drift downward before your loan closes.
"It's more important for me to have a customer satisfied than to hold out for the highest rate," explains Natalie Kuhn, district loan manager for the Pikesville office of Great Western Mortgage.
Great Western has begun offering a "one-time rate unlock." Early in the loan processing period, you get a written rate commitment that holds firm to settlement, even if market rates rise. Should rates fall, you can call the lender and take advantage of the improved market.
Great Western's program is just one of many formal entries in the best-of-both-worlds competition. But even lenders who are not promoting such programs might be willing to let you out of a locked rate.
"People who are savvy about real estate finance are winning more concessions in the marketplace," says Peter G. Miller, the Silver Spring-based real estate author.
Your first step in using your leverage is to understand why your lender may be willing to deal with you.
Interest rates may be favorable at present, but bad economic times have dampened demand for mortgages.
"We still have huge numbers of people being laid off, a terrible budget deficit, miserable balance of payments statistics and major corporations exporting jobs overseas. We also have states that are terribly in debt. So there isn't as much competition for money as there would be in a robust economy," Mr. Miller says.
All this is bad news if you're looking for a job -- but good news if you're looking for a mortgage.
"The industry is recognizing there is major competition for every deal and that they're not the only game in town. Lenders have to demonstrate some flexibility," says Ms. Kuhn.
Lenders generally face costs associated with changing a mortgage rate in the middle of the game. But counterbalancing those costs is the fear that they could lose a good applicant to another lender willing to cut a better deal. "There's no harm in calling your lender and trying to negotiate when rates fall. Even if the loan is locked in, you should stay aware of what's happening in the market and always try to do better," says Sidney Lenz, executive vice president of Countrywide Funding Corp.
To those interested in playing the mortgage rate game to greatest advantage, real estate finance specialists offer these pointers:
* Realize that "rate protection" programs are available even prior a loan application.
Countrywide Funding has begun offering a "Lock N' Shop" program that allows you to lock in a rate even before locating a property.
While shopping for a home, a "Lock N' Shop" certificate guarantees a maximum rate for up to 30 days. Should rates drop while you're searching for the house, you can still take advantage of the lower rates at application.
While relatively few lenders are offering a program that formally locks a rate prior to application, others might be talked into doing so.
* Be sure that your rate lock isn't giving you a false sense of security.
The practice, called "blind-locking," was prevalent in 1986 when a surge of refinancing activity brought confusion to many lending offices. Applicants were given verbal promises that their rates had been locked, only to discover at the settlement table that they'd been duped.
Fortunately, Maryland law now requires that you be given a written guarantee of your rate before you close on a mortgage. That means your chances of being blind-locked are reduced if you're involved in a local real estate transaction.
* Be sure your lock is a complete, rather than partial, lock.
"Some locks are better than others," points out Mr. Miller, the author. It's not enough to get a letter spelling out your maximum interest rate alone. Your lock should also specify the maximum number of "points" you'll be required to pay on your loan. Otherwise, you could face a nasty surprise on the eve of settlement. (A point is 1 percent of the mortgage amount.)
* Use the art of negotiation to work your way out of a locked position if rates are falling.
Even if you're not signed on to a best-of-both-worlds program like that offered by Great Western, you can call your loan officer and seek a release from your lock if the market has moved downward.
"The first step is to reason with the loan officer. If that doesn't work, calmly mention that you might go to another lender. At that point, you'll really find out whether he has the ability to lower your rate or not," advises Ms. Lenz.
* Compromise rather than holding out for the last nickel.
You can drive your lender crazy by trying to shave another eighth of a percentage point from your mortgage. In the long run, you'll do best if you're as reasonable as you expect your lender to be. As Ms. Kuhn advises: "Remember the old Wall Street saying. Bears and bulls make money, but pigs get slaughtered."